2015 (8) TMI 13 - AT - Income Tax

TDS liability on term deposits - assessee is a Co-operative society engaged in Co-operative business of banking which was registered under Uttarakhand Sahkari Samiti Adhiniyam 2003 - Held that - As far as the applicability of the relevant provision is considered, the Co-ordinate Bench in the case of Kashipur Urban Co-operative Bank Limited vs. ITO 2015 (7) TMI 760 - ITAT DELHI relying upon the decision rendered in ACIT vs Visakhapatnam Cooperative Bank Ltd. (2011 (8) TMI 319 - ITAT VISAKHAPATNAM) has held that the assessee was not obliged to deduct TDS on the interest paid on time deposits u/s 194A of the Act. Considering the factual matrix, it is seen that the record shows that the assessee through its Branch Manager has filed written submissions on 07.05.2013 claiming that every taxpayer is a member of Almora Urban Co-operative Bank Ltd. These facts need verification. The legal issue having been decided in favour of the assessee, on facts we restore the issue back to the file of the AO for this limited purpose - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Applicability of section 194A(3)(v) of the Income Tax Act regarding tax deduction at source by a cooperative society on interest payments to its members.

Analysis:
The appellant challenged the order of CIT(A) regarding the obligation to deduct tax at source on payments made by the assessee. The Assessing Officer (AO) observed that the assessee had not deducted tax on term deposits, leading to a demand under section 201(1)/201(1A). The appellant contended that as a cooperative society engaged in banking, it was exempt from TDS under section 194A(3)(v) of the IT Act. The AO directed the assessee to pay for the default, which was upheld by the CIT(A), prompting the appeal before the Tribunal.

The appellant argued that various Tribunal orders supported their position, citing cases like Kashipur Urban Co-operative Bank Ltd., Bagalkot District General Co-operative Bank, and others. They also mentioned retrospective amendments in the Act addressing the issue. The Senior DR, however, raised concerns about the primary or secondary membership of the cooperative bank members.

The Tribunal analyzed the relevant provisions and previous decisions. Referring to the case of Kashipur Urban Co-operative Bank Ltd. vs. ITO, it held that the appellant was not required to deduct TDS on interest paid on time deposits under section 194A. The Tribunal highlighted the exemption provided to cooperative societies under section 194A(3)(v) for interest payments to members. It also referenced the decision in Bagalkot District Central Co-op. Bank, supporting the exemption. The Tribunal emphasized the interpretation of the law and the prevailing judicial opinions favoring cooperative societies not deducting TDS on interest payments to members.

Consequently, the Tribunal ruled in favor of the appellant, directing verification of facts regarding the membership status of depositors. The order set aside the previous decision and restored the matter to the AO for verification purposes only. The appeal was allowed for statistical purposes, and the judgment was pronounced on 10.6.2015.